'Every Day Is Black Friday' In Housing As Prices Tank, Case-Shiller Shows

Housing markets remain deeply depressed, as the latest S&P/Case-Shiller Home Price Indices show. September data, released Tuesday, show that prices continue to drift lower, with three cities posting new index lows, as real estate markets remain unable to shrug off a massive inventory of foreclosed homes and a weak economy.

National home prices fell at an annual rate of 3.9% in the third quarter, as real estate markets tread even lower. The decline appears to be decelerating, as Q2 prices fell 5.8% on an annual basis while Q3 inched up sequentially 0.1%.

"Housing remains stuck in the proverbial mud," explained Gluskin Sheff's Dave Rosenberg. Despite the annual index appearing to decelerate its decline, both the 10- and 20-city composites fell more than expected. In September, the 10-city fell 3.3% while the 20-city was down 3.6% over the same month in 2010; 18 of the 20 cities surveyed registered negative annual rates in September.

Six of the 20 cities fell on a monthly basis, with Atlanta, Las Vegas, San Francisco, LA, Seattle, and Tampa down in September over August. Even more "disturbing," as Case-Shiller Index Chairman David Blitzer put it, was the fact that three markets -- Atlanta, Las Vegas, and Phoenix -- posted "new crisis lows."

"Over the last year home prices in most cities drifted lower. The plunging collapse of prices seen in 2007-2009 seems to be behind us," explained Blitzer, who added "markets are fairly thin, and the relative lack of closed transactions might be exacerbating the downside. The problem continues to be the massive backlog in the foreclosure pipeline. According to RealtyTrac, new foreclosures jumped 7.4% in October on a monthly basis to 230,678, while the number of foreclosed homes sold tanked 25% to 75,243 in September from the prior month, according to the most recent data.

As Blitzer explained, the problem is the low levels of transactions. Fed Chairman Ben Bernanke has explained on numerous occasions that housing, along with employment, is among the most important prerequisites for any economic recovery. After a real estate bubble-induced financial crisis that brought the global economy to its knees, the Fed has done all it can to support housing prices, to no avail.

Interest rates have fallen to record lows, with 10-year Treasuries frequently trading below 2%. The Fed has engaged in two rounds of quantitative easing and is currently in the process of extending the maturity of its balance sheet, providing further support for housing markets by pushing long-term rates lower and allowing cheaper mortgage refinancing. The Fed is also currently reinvesting the proceeds of its agency securities portfolio into residential mortgage backed securities.

But, as Rosenberg said, prices remain depressed because in housing, "every day is Black Friday." Major banks like JPMorgan Chase, Citi, and Bank of America still hold massive amounts of foreclosed and distressed properties on their balance sheets. Blitzer notes that "any chance for a sustained recovery will probably need a stronger economy," but his comment begs the question, as the economic recovery is in part conditional on stronger housing markets. Analysts at Barclays put it more clearly, writing in a note "we expect prices to begin to stabilize as distressed sales gradually decline as a proportion of total sales, but this process will take some time."

Housing markets have yet to recover. On an absolute level, home prices hit a bottom after the crisis, and have bounced around that bottom, drifting even lower. On a rate-of-change basis, there was a clear bounce from the bottom and a substantial second dip.

Any sort of self-sustaining recovery, at this point, appears unfathomable.